Can a Minor be a 1099 Employee?

A few years ago, my then 16-yr-old niece received a Form 1099 from a dentist office where she had been a nighttime cleaner. Knowing what I do about HR, I asked the accountant who had sent her the form about the questionable practice of “hiring” teenagers and then paying them as independent contractors.

These are actual responses from that conversation.

“This is common practice throughout the industry.”

This reasoning didn't sit well with me. Legal decisions should never be based on common industry practice.

The IRS (Internal Revenue Service) has established three categories of common law rules that define whether a worker is an independent contractor or an employee: behavioral, financial, and nature of the relationship. Let's break each of these down.

1. Behavioral Aspect

In this regard, the IRS asks whether the company directs or has the authority to direct which tasks the worker performs — and how those tasks are completed. The more authority the company has, the more likely the worker is an employee, and vice versa.

One reason the accountant insisted that my niece was legitimately paid as a contractor is because she had a key and was coming in after school hours to fit her schedule. In his mind, the flexibility for her to come in whenever she could, as long as it was after 5:00 P.M. when the dentist office was closed, helped justify the "independence" of a 1099 worker.

That might be a consideration, but let's keep assessing the situation.

I learned that my niece had been instructed on what to clean, how to clean it, and used materials provided by the dentist office to do the cleaning. Why? Because she was not a professional office cleaner with her own tools who traveled from site to site to do nighttime cleaning; she worked for this one and only dentist office and had to be taught the appropriate way of cleaning the office from the office manager.

Although she was working autonomously to complete the tasks, my analysis of the behavioral aspect was negative for any independent contracting classification.

2. Financial Factors

For this common law rule, the IRS asks if the company controls the financial aspects of the worker’s job. This may include how the worker is compensated, whether business expenses are reimbursed, and who supplies the tools, equipment, or materials. When a company has this level of control, the worker is likely an employee. But when the worker sets the terms of compensation for their business income and supplies their own tools, equipment, or materials, they are likely a 1099 independent contractor.

In my niece's situation, she tracked and submitted her hours, then was paid on a biweekly basis for all hours worked. She also used the company's cleaning materials. Once again, this points to an employment situation, as independent contractors are paid by the job or project, not on a regular biweekly schedule for tracked hours worked, and they typically supply their own tools and equipment.

3. Nature of the Relationship

When examining this factor, the IRS looks at whether there are written agreements or benefits typically associated with employment (such as retirement plans, insurance, or paid vacation), if the relationship is expected to be ongoing, and if the work performed is a central part of the company’s business.

In my niece's case, she signed an agreement (see the next section below), no benefits were paid or tax deductions made, and the relationship was somewhat temporary (after all, she would soon graduate and move on to college). But temporary in IRS terms means the project being contracted out would, at some point, be completed without an ongoing need for continuous work. Cleaning is very much something that must be done regularly on an ongoing basis for a dentist office.

That brings me to the next question when assessing this factor: is cleaning central to the company's scope of business? It's definitely not the reason they're in business, but a dental office would not stay in business long if it were not regularly cleaned. Even though it's not the service or product that pays the bills, it is fairly critical to have done regularly.

Ultimately, the nature of the relationship in my niece's situation also points to employment.

Will the administration's proposed rule change these factors?

The current administration has proposed an updated rule to define when a worker is an employee vs. an independent contractor, with an outcome yet to be determined. However, the purpose is the same: to determine whether the company or the worker holds the most control. Stay tuned regarding how the new rule, if adopted, will change any of these factors.

"She signed a contract acknowledging her status as an independent contractor."

This statement also made me cringe. In my opinion, one of the weakest arguments for being an independent contractor (and one of the easiest ways to prove that an employer is skirting the law) is by making workers sign something. Employers are expected to know and abide by all employment laws, including paying people legally.

My niece was 16 years old and new to the workforce when she signed this contract - she had never paid income tax or filed a tax return before. Being paid as an independent contractor meant she would now be responsible for paying self-employment taxes on her income (Social Security taxes and Medicare taxes) when normally the employer would pay half of them. While these may not be significant tax benefits for a child's wages, they do add up over time - especially for an employer not having to pay them.

Although her signed agreement could be an argument for proving the nature of the relationship was an independent contractor, closer analysis shows the contract she signed was actually illegal rather than a binding agreement.

Is There a Way for the Dentist Office to Have Paid My Niece as an Independent Contractor?

Ultimately, my niece was not set up as a sole proprietorship to have been legally paid as a 1099 independent contractor. However, the dentist office could have signed a contract with a janitorial services company to clean after hours, and that would have satisfied all three of the IRS factors. Then my niece could have been employed by the janitorial company, and the classifications of employee and contractor would be legal.

Why Paying Minors as a 1099 Employee is Riskier than Adults

When a business pays someone as an independent contractor (1099) who should legally be an employee, it’s called worker misclassification. If someone is misclassified as an independent contractor rather than an employee, agencies like the IRS and the U.S. Department of Labor can impose penalties such as:

• Back pay taxes
• Employer share of Social Security and Medicare taxes
• Unemployment insurance contributions
• Overtime and minimum wage violations
• Interest and penalties
• Minimum age
• Hours minors can work
• Hazardous jobs they cannot do
• Record keeping requirements

Companies have been known to intentionally misclassify workers as 1099 independent contractors because of the reduced overhead they have through bypassing wage protections and administrative obligations. These businesses avoid collecting and paying payroll taxes (Federal Unemployment Tax Act, or FUTA, and FICA taxes), save money by not providing employee benefits, avert paying workers' comp premiums, and have reduced paperwork and compliance requirements. Ultimately, their lower operating costs help them gain an unfair advantage over competitors. However, their company and workers are at much higher risk, especially when done illegally, with no employment protections offered to workers.

Enforcement agencies, on the other hand, care about proper classifications because of all the employment safeguards and legal protections set up to protect employees. This is accentuated when the worker is a minor.

When the worker is a minor, additional laws apply

Employee protections are much more stringent when the worker is under 18 because of child labor laws per the Fair Labor Standards Act (FLSA). These regulate:

If you classify a minor as a contractor when they are actually an employee, you could be in violation of federal and state child labor provisions. Not only should you be completing employment eligibility verification with the IRS Form I-9, but payments to minors must be properly documented and compliant with legal requirements to avoid penalties.

There may be exceptions to child labor laws for family members working for family-owned businesses. Please contact your certified Stratus HR consultant with any questions.

Understanding Child Labor Laws with Employment Status

Properly classifying minors as employees is a critical step in complying with child labor laws and helps protect your business. It also supports fair compensation, legal compliance, and a safer working environment for young workers entering the workforce.

When in doubt, pay the worker as an employee. There are no legal implications for a misclassified employee; only misclassified 1099 independent contractors are challenged.

Final Thoughts

Many employers fall into the habit of copying the practices of similar businesses simply because “that’s the way it’s always been done.” However, the fact that a practice has not been challenged or resulted in a lawsuit does not mean it is a sound or compliant business practice. Do your due diligence and learn whether your operations are within the law.

Better yet, contact Stratus HR to conduct a free assessment.